Originally posted on April 20, 2010.
House and Senate Democrats are attempting to shove a massive 1,408 page financial regulation reform bill through Congress that grants unlimited taxpayer bailouts of Wall Street. Every single Republican in the Senate has signed a letter to Senate Majority Leader Harry Reid expressing their opposition to the bill. The letter urges that bipartisan negotiations take place on the issue of financial regulation reform in order to prevent another financial crisis. According to the letter signed by 41 Republican Senators,
As currently constructed, this bill allows for endless taxpayer bailouts of Wall Street and establishes new and unlimited regulatory powers that will stifle small businesses and community banks.
One of the most unacceptable provisions in Senator Dodd’s (D-CT) bill is a $50 billion bailout fund.According to the Associated Press,
The provision in question would compel large financial institutions to provide the $50 billion, which the Federal Deposit Insurance Corp. would use to pay for dismantling giant failing firms.
In addition, economist Larry Lindsey notes that there are multiple other sections that are dangerous in this lengthy bill, including:
First, the bill contains a $50 billion fund for resolution of systemically risky institutions. The bill allows a 2/3 vote of the Financial Stability Oversight Council to deem any firm (financial or non-financial) as coming under its rubric and then authorizes the FDIC and Treasury Secretary to treat each of the firm’s shareholders and creditors as they choose, without regard to bankruptcy law. Second, the bill gives the Treasury and the FDIC authority to grant an unlimited number of loan guarantees to systemically risky institutions. No Congressional authorization or appropriation is required. Third, the bill gives the Fed the authority to fund any “program” to assist these institutions accepting as collateral anything it deems appropriate. So perhaps too big to fail is dead. How could any firm actually fail when all of its debt could be guaranteed by the Treasury, the Fed could print money to assist it, and just in case, there was $50 billion sitting around to reassure nervous creditors that they would be repaid regardless what contract or bankruptcy law said?”
Dodd’s bill is gaining bipartisan opposition, Brad Sherman (D-Calif.) warns of the dangers hidden in the financial regulation reform bill,
But there are serious problems with the Dodd bill. The Dodd bill has unlimited executive bailout authority. That’s something Wall Street desperately wants but doesn’t dare ask for. The bill contains permanent, unlimited bailout authority.
Undoubtedly, Senator Dodd’s bill is pro-Wall Street since it guarantees that they will have lower borrowing costs. According to Heritage Foundation scholar Brian Darling,
Congressional Democrats and the Obama Administration want to create a permanent bailout mechanism all while spouting their rhetoric of getting tough on Wall Street, but if you look at who is already lining up to support their ‘reform’ measure it’s a who’s who of the big banks that have already received the taxpayer bailout the first time.
According to Larry Lindsey, the bill will benefit politically powerful groups at the expense of the American people,
Labor gets “Proxy Access” to bring its agenda items before shareholders as well as annual “say on pay” for executives. Consumer activists get a brand new agency funded directly out of the seignorage the Fed earns. No oversight by the Federal Reserve Board or by the Congress on how the money is spent. This is the first known Congressional raid on Fed cash flow to fund projects without oversight.
Sen. McConnell(R-KY) has been an outspoken critic of the financial regulation reform bill stating that the biggest banks should be allowed to fail,
We cannot allow endless taxpayer-funded bailouts for big Wall Street banks. And that’s why we must not pass the financial reform bill that’s about to hit the floor…[The Dodd bill] gives the government a new backdoor mechanism for propping up failing or failed institutions…. We won’t solve this problem until the biggest banks are allowed to fail.
Cato Institute scholar Gerald P. O’Driscoll refers to this financial reform proposal as crony capitalism when government and businesses collude,
Crony capitalism ensures the special access of protected firms and industries to capital. Businesses that stumble in the process of doing what is politically favored are bailed out. That leads to moral hazard and more bailouts in the future. And those losing money may be enabled to hide it by accounting chicanery…If we want to restore our economic freedom and recover the wonderfully productive free market, we must restore truth-telling on markets. That means the end to price-distorting subsidies, which include artificially low interest rates. No one admits to preferring crony capitalism, but an expansive regulatory state undergirds it in practice.
With more Americans claiming that the Federal Reserve may be to blame for the current economic crisis, this is the time for more Fed transparency by repealing their special audit protections. However, this financial regulation reform bill is partisan, pro-Wall Street, will likely result in permanent taxpayer bailouts of banks and it will greatly expand the powers of the Federal Reserve. Sen. Dodd’s bill is likely to be debated in the Senate this week as Democrats struggle to obtain one Republican vote. Please use FreedomWorks’ war room to contact your Senator and inform him or her that you do not approve of this unlimited bailout bill disguised as financial regulation reform.